The U.S. government has refused to allow the MegaUpload defendants access to information on their servers, which in turn is impeding their ability to defend themselves, the company's lawyer told CNET.

MegaUpload founder Kim DotCom.
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Ira Rothken, the U.S. attorney overseeing MegaUpload's international defense team, said the U.S. has refused to release funds that would enable MegaUpload to preserve and gather materials from company servers vital to its defense. Rothken said that he fears U.S. officials are withholding the money in an attempt to unfairly hobble MegaUpload's defense.

"It's hard to reconcile the chain of events in this matter with any other conclusion," Rothken said. "MegaUpload is frustrated and wants to preserve the data for litigation and to defend itself and ultimately -- with the approval of the court -- to provide consumers access to their data."

In January, the U.S. issued an indictment against MegaUpload, founder Kim DotCom and six other managers of the cyberlocker service, where users could store e-files and then share the contents with others. MegaUpload's leadership is accused of conspiring to commit Internet piracy, racketeering and wire fraud. DotCom's home in Auckland was raided by New Zealand police, his assets seized and the service shut down.

The U.S. wants to try DotCom in this country and an extradition hearing is scheduled for August. Rothken said there is no criminal secondary copyright infringement in the United States and said MegaUpload will prevail.

The case is important because until now, copyright infringement was largely a civil, not a criminal matter. For the most part, the worst thing that could happen to a service accused of helping customers infringe intellectual property was that someone might sue it.

Not any more.

U.S. officials seem intent on making some types of copyright infringement a criminal offense. U.S. authorities say MegaUpload was responsible for $500 million in damages to copyright owners, and the feds appear to have dedicated some serious resources to prosecuting the company. To defend itself against the U.S. government, MegaUpload will need all the material to which it is entitled, said Rothken.

As the extradition hearing nears, company lawyers say they're unable to collect emails, files and other documents they claim will refute the allegations against MegaUpload. The company's servers are hosted by Virginia-based Carpathia Hosting. The government initially locked the servers up while its agents collected evidence, but in January released all claims to them.

MegaUpload believed it would then be able to copy information from the servers itself. Rothken said he attempted to hire an electronic-discovery expert from KPMG to collect the data, but found that the cost would exceed $7 million. U.S. officials declined to release funds from MegaUpload's seized assets to pay for the operation, the lawyer said.

Rothken then negotiated a deal with Carpathia to buy the servers for a little over $1 million, but he says the government again refused to release the money. Rothken said that the servers were worth more than the $1 million and that after the case was over their sale would bring the cost of the transaction to zero.

Rothken said he also told the government that he would restrict access to the data to only lawyers involved in the case. Still, the government wouldn't budge.

A spokesman for the U.S. Attorney for the Eastern District of Virginia, where the MegaUpload indictment was issued, suggested in an e-mail that the office didn't consider Rothken's requests reasonable.

"As we've stated previously," the spokesman wrote, "we continue to give careful and thoughtful consideration to any reasonable and detailed proposal by MegaUpload's counsel that addresses the practical and technical issues of this matter for the court. Ultimately, it is the court that will decide what is appropriate and whether any funds will be released to carry it out."

A hearing on the issue of what will be done with the MegaUpload's data is expected in mid-April. Carpathia has said the cost of maintaining the servers has topped $500,000 and pleaded with the court to either allow the company to delete the information or to figure out a way to pay for the data storage.

The Motion Picture Association of America (MPAA) has said that it wants to preserve the data so that it can use it as evidence should it decide to file civil litigation. The Electronic Frontier Foundation wants the material saved so that legal files stored on the service can be returned to consumers at the earliest possible time.

About the author

Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
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